How to buy Property in Spain

Credit: https://commons.wikimedia.org/wiki/File:Spain_topo.jpg

Credit: https://commons.wikimedia.org/wiki/File:Spain_topo.jpg

All property in Spain should be registered in the Registro de la Propiedad (the land registry), where you can obtain the full details of the owner, the exact size of the property and full details of any mortgages, debts or judgments against the property will normally be registered. Only the persons or company named on the Escritura Publica, the title deed, have the right to sell the property, unless a notarised power of attorney has been given to a third party.

When the title deed is signed, you will automatically become the new owner. The final step is to have the ‘Escritura Pública’ registered in the Property Registry Office as soon as possible to prevent a mortgage or other charge being registered against the property, while it is still listed in the name of the seller.

Spanish Taxes and Fees

The following are the costs you should include on top of the purchase price when buying an investment property in Spain.

Lawyers/Solicitor’s Fee:
Although it is not compulsory to engage a solicitor, if you are not familiar with the procedure you can appoint your own solicitor. It is important to seek professional advice from a local solicitor (Abogado). Their standard fee for the purchase of a property is 1% of the purchase price plus VAT. Using a non-local solicitor will be more expensive. The Spanish legal system is very different from other European countries and, to avoid misunderstandings, disappointments and possible fraud, it is essential to seek expert professional advice from the beginning.

Notary Fee:
These are collected by the Notary after preparing the deed and presiding over it’s signing. This fee is fixed by law, on a set scale according to the property value, but is not usually more then 1% of the purchase price including VAT.

Please note all professional fees including the notary’s and land registry’s charges are subject to 16% VAT.

Stamp Duty or IVA (V.A.T):
Which of these two taxes is levied will depend on the type of property you are purchasing. The property transfer tax is levied on resale properties and is charged at 7% of the new escritura value (purchase price).

If you purchase a newly built property, you will pay a different tax called I.V.A. (V.A.T.) which is charged at 7% of the selling price plus 0.5% stamp duty. You will be required to pay the 7% IVA (VAT) and the documentary stamp duty upon completion. No tax is payable before that point.

Property Registration fee:
A Property Registration fee is charged by the property registration office to inscribe the new deed into your name. The fee is based on the official registered value of the property. The length and complexity of the deed and other factors are also considered. The fee does not exceed 1% of the registered value.

Real Estate Taxes:

Municipal Tax (basura): local
This varies depending on where you live. Usually assessed per house or building. Sometimes the tax is combined with water consumption. Please see your Sales manager for details.

Non-residents
If you are a non-resident of Spain, and you keep the property for your own use, you will have to pay two annual personal taxes. There is a deemed income of 1% – 2% of the catastral (rateable) value of the house, and the tax is 25% – so, the tax is a quarter to a half a percent annually of the rateable value. There is also a wealth tax; the rate of wealth tax depends on the value of the property, and those rates range from 0.2% to 2.5%. As an example, a property valued at 200,000 Euros would pay 432.87 Euros (an average rate of a little under 0.22%) per annum. Both income and wealth taxes may be paid together on one simple form, provided that you own only one property in Spain for your own use.

If you rent the property out, Spanish tax of 25% of the rental is due. This can normally be offset against any taxes due in your home country.

Residents
The same two annual taxes as above are due from residents who occupy their own Spanish property. The two differences are that the deemed income (1% – 2% of the catastral value) is added to your other income and taxed according to the rates given below, and that, in respect of wealth tax, residents benefit from an exempt band of a little over 108,000 Euros. This is subject to upward change. Income taxes are applied in bands in much the same way as the U.K.

Income Tax Rates

Income Tax rate on this portion
0 – 4,161€ 15%

4,162€ – 14,357€ 24%

14,358€ – 26,842€ 28%

26,843€ – 46,818€ 37%

> 46,819€ 45%

Personal and family reliefs (“personal and family minimum”) are given by way of deductions from total income, before applying the tax rates. The core relief is a personal minimum of Euro 3,400 per taxpayer (ie Euro 6,800 for a married couple). Additional amounts may be added to the personal minimum to reflect disability, age over 65, and single-parent status. An additional family minimum may be available to reflect, for example an aged parent, or an unmarried child, financially dependent upon and living as a member of the taxpaying family unit.

If you let your house, the rental income you receive is also added to your other income and taxable at the above rates. If your taxes are being withheld and you earn less than 21,000€, you don’t have to file. If you are a UK citizen, you must apply for certificate E101 to indicate that you will be a resident of Spain, and no longer subject to pay income tax in the UK. There is also a notional tax levied on deemed rental income on property that is not your main home or not rented out. It is normally based on 2% of the official value (valor catastral). This rate drops to 1.1 per cent of the valor catastral if this has been revised since 1994. Where such a property is only let for part of the year, the notional income is calculated for the part of the year that the property is unlet. The notional income is added to your other income and taxed at the appropriate rate (or a flat 25% for a non-resident).

As a Spanish tax resident you will be liable to pay Spanish tax on your WORLDWIDE income which includes your UK state retirement and other pensions and interest earned on deposit accounts in the UK or offshore.

Environmental Services Taxes:
The local equivalent of rates, known as IBI, includes an annual charge for rubbish collection. In addition, your property may form part of a Community of Owners in which case your annual subscription must be paid, to deal with the upkeep of the common areas and other community matters. All Communities of Owners have legal powers to enforce payment – membership is not voluntary. In the case of a new house, you may be required to make a deposit to help provide an initial working fund for the new Community. See your Sales Manager for details.

Insurance:
Whether you are going to use your second home in Spain as a family holiday home or let it for investment income, it is essential that you arrange suitable insurance cover. Most insurers see bigger risks associated with holiday homes because they are often left unoccupied for long periods, and are consequently more expensive. When exchanging contracts your solicitor or moneylender in Spain will need proof that you have suitable buildings insurance, or they may recommend a Spanish Insurer. Before you choose a foreign policy it is important that you read the small print so you understand the scope and restrictions of cover. Unless you are fluent in Spanish this can be difficult.

You may also find that policies offered by European insurers are cheaper, however cover tends to be much more limited than UK policies. You may be better off choosing a comprehensive policy in the UK that’s written in plain English and specifically designed for holiday homes in Spain.

Ongoing Costs

Running Costs
All bills must be paid by Direct Debit from the client’s Spanish bank account.

Electricity, Water and Gas:
The standing charges are € 15 per quarter for water, and € 15.84 every two months for a 3.3 1Kw electricity supply. On top of this there is, of course, the actual consumption.
As gas is supplied in bottles it is possible to contract for 1 or 2 bottles. The cost for 1 is approx. € 42, and for 2 apprpx. € 66 Euros. Exchange bottles cost approx. € 6, and can be obtained from Repsol Butano or delivered to the client’s property.

Capital Gains
Capital Gains Tax in Spain for residents is a maximum of 15%, calculated as part of their Spanish income tax. As of January 1st 2007, Capital Gains Tax for non-residents has been reduced from 35% to 18%. 3% of the declared value of the property will be retained by the Notary on the day contracts are signed. The remaining amount is deductible with the subsequent year’s tax return. Any expenses incurred during the property sale (ie., Notary and solicitor’s fees) can be offset against this.

There are several exemptions from Spanish capital gains taxes:

• Residents over 65 yrs old selling their principal residence after a minimum of three years are not liable for capital gains tax in Spain.

• Residents who reinvest all of the proceeds of sale to purchase another principal residence can get capital gains tax relief, provided they have lived in the property for at least 3 years .

• If they use only a portion of the proceeds from a property sale, they will get a percentage relief up to the amount reinvested. (rollover credit)

• Property bought prior to 31st Dec 1986 is exempt from CGT liability for residents & non-residents, due to old legislation. Property bought between 1986 and 1996 is partially exempt.

• People over 65 who use the “inherit from yourself scheme” in which you sell your house but retain the right to live in it until your death are exempt from CGT. (“Usufructo.”)

Inheritance
Wills prepared by foreign nationals in their own countries can be executed in Spain so as to transfer ownership of property to beneficiaries within the wills.

The liability to inheritance tax in Spain depends partly on the relationship between the deceased and the beneficiary. There is a small threshold for close family such as parents, children and spouses but this threshold is far lower than people would expect in the UK. The threshold is reduced for nephews, nieces and cousins and could be nil for unrelated people, such as friends. The amount of inheritance tax payable in Spain will also depend on the wealth of the recipient. Non-Residents are liable on receipt of any asset situated in Spain on the death of the donor. Spanish resident individuals are liable to inheritance taxes on receipt of any asset on either the death of the donor, or as a lifetime gift.

How you plan for inheritance tax in Spain will also depend on where you are deemed to be domiciled. This is not always as straight forward as you think and may depend on where you hold assets and/or how long you spend in a certain country. Determining Spanish inheritance tax liabilities in Spain requires some detailed calculations and as you would expect a degree of documentation. However, the top rate of inheritance tax is as much as 34%. Most importantly, Spouses are NOT exempt from inheritance taxes.

We strongly recommend taking professional advice on this subject

Mortgages

• Available for existing and off-plan properties
• Available to local and foreign buyers
• Maximum 80% LTV
• Maximum term 20 years
• Minimum loan €40,000
• Maximum loan € 200,000
• Euros & Sterling only
• Rates from 5.90% fixed for 1 year in Euros or
6.90% fixed for 1 year in Sterling

Cautionary Notes
Whether you are buying property in England or abroad there will always be potential risks. Spain is no different. You need to consider the following questions:

• Does the property have good title?
• Does the owner actually own it?
• Is the land/property clear of outstanding debts?
• Has the building been constructed legally?
• Do you understand the contract of sale?

Investment Overview

Geography and Demographics

Background

Spain has a very ancient and complex prehistory. Under the Roman empire Hispania flourished and became one of the empire’s most important regions. During the early Middle Ages it came under Germanic rule. Later, nearly the entire peninsula came under Muslim rulers. The Christian kingdoms in the north gradually rolled back Muslim rule, which was finally extinguished in 1492. That year Columbus reached the Americas, the beginnings of the first global empire. Spain became the strongest kingdom in Europe in the sixteenth and first half of the seventeenth centuries but continued wars and other problems eventually led to a diminished status. In the middle decades of the twentieth century it came under a dictatorship, under which it went through many years of stagnation and then a spectacular economic revival. In 1986 it joined the European Union and has experienced an economic and cultural renaissance.

Geography
On the west, Spain borders Portugal, on the south, it borders Gibraltar (a British overseas territory) and Morocco, through its cities in North Africa (Ceuta and Melilla). On the northeast, along the Pyrenees mountain range, it borders France and the tiny principality of Andorra. Spain also includes the Balearic Islands in the Mediterranean Sea, the Canary Islands in the Atlantic Ocean and a number of uninhabited islands on the Mediterranean side of the strait of Gibraltar, known as Plazas de soberanía, such as the Chafarine islands, the isle of Alborán, the “rocks” (peñones) of Vélez and Alhucemas, and the tiny Isla Perejil. In the northeast along the Pyrenees, a small exclave town called Llívia in Catalonia is surrounded by French territory.
Mainland Spain is dominated by high plateaus and mountain ranges, such as the Sierra Nevada. Running from these heights are several major rivers such as the Tajo, the Ebro, the Duero, the Guadiana and the Guadalquivir. Alluvial plains are found along the coast, the largest of which is that of the Guadalquivir in Andalusia.
Spain is divided into 17 autonomous communities (comunidades autónomas) and 2 autonomous cities (ciudades autónomas) – Ceuta and Melilla. These autonomous communities are subdivided into 50 provinces (provincias).

Demographics

Population: 44,708,964 (January 2006)
Age structure (2000 est.):
0-14 years: 14.4% (male 3,000,686/female 2,821,325)
15-64 years: 67.8% (male 13,751,963/female 13,653,426)
65 years and over: 17.7% (male 2,993,496/female 4,176,946) (2006 est.)
Population growth rate: 0.13% (2006 est.)
Birth rate: 10.06 births/1,000 population (2006 est.)
Death rate: 9.72 deaths/1,000 population (2006 est.)
Net migration rate: 15 migrant(s)/1,000 population (2006 est.) [4]
Sex ratio: at birth: 1.07 male(s)/female
under 15 years: 1.06 male(s)/female
15-64 years: 1.01 male(s)/female
65 years and over: 0.72 male(s)/female
total population: 0.96 male(s)/female (2006 est.)
Infant mortality rate: 4.37 deaths/1,000 live births (2006 est.)
Life expectancy at birth:
total population: 79.65 years
male: 76.32 years
female: 83.2 years (2006 est.)
Total fertility rate: 1.28 children born/woman (2006 est.)
Religions: Roman Catholic 80.4%, atheistics or agnostics 17.2%, other 2.3% [5]. According to a December 2006 study, 41% of the population described themselves as atheist or agnostic, while 48% believed in a God or supreme being.[6]
Languages:
Spanish (official) 100%
Catalan 10% (co-official in Catalonia, Balearic Islands, and Valencia)
Galician 6% (co-official in Galicia)
Basque 1.6% (co-official in Basque Country and designated areas in Navarre).
Aranese (a variant of Gascon Occitan) is co-official in Val d’Aran, a small valley in the Pyreenes.

Economic Overview

Economy
Following peak growth years in the late 1980s, in 1992 the Spanish economy was finally touched by the late 1980s recession; that happened, tellingly, on the year when the Barcelona Olympics were held and all the construction investment and feasts were finished. The economy, however, recovered during the first Aznar administration (1996-2000), driven by a return of consumer confidence and increased private consumption. Unemployment is at 7.6% (October 2006), which represents a significant improvement from the 80’s levels and a better rate than the one of Germany or France. Devaluations of the peseta during the 1990s made Spanish exports more competitive.

In 1999 Spain was amongst the leading group within the EU to adopt the Euro as their accounting money in preparation for its lauching as a physical currency, which happened in January 1, 2002. On that date Spain terminated its historic peseta currency and replaced it with the euro, which has become its national currency. This culminated a fast process of economic modernization even though the strength of the euro since its adoption has raised recent concerns that Spanish exports outside the European Union are being priced out of the range of foreign buyers. However, this has been offset by the facilitation of trade among the euro nations.

The Spanish economy is credited for having avoided the virtual zero growth rate of some of its largest partners in the EU (namely France and Germany) by the late 90’s and beginning of the 21st century in a process which started with former Prime Minister Aznar’s liberalization and deregulation reforms aiming to reduce the State’s role in the market place. In 1997 Spain started an impressive economic cycle -which keeps going as of 2007- marked by an outstanding economic growth.

GDP growth
Due to its own economic development and the recent EU enlargements up to 27 members (2007), Spain as a whole finally slightly exceeded (100.7%) the average of the EU GDP in 2004. As for the extremes within Spain, three regions were included in the leading EU group exceeding 125% of the GDP average level (Madrid, Navarre and the Basque Autonomous Community) and one was in the 85% level (Extremadura). According to the growth rates after 2004 to date, noticeable progress from these figures is still going on as of 2007 and the real growth rate in 2006 was 3.9%

Inflation
The “headline” inflation rate, calculated by European standards is 3.9%

Interest rates
The Euribor rose to 3.54% in July, but Spanish interest rates are in line with the rest of Europe.

Unemployment
Unemployment has been steadily falling and currently stands at 7.6%. Sixty four percent of the labour force work in the services industry, tourism ranking highly.

Budget surplus
The Spanish budget surplus narrowed to 8.015 bln eur in the seven months to end-July, or 0.77 pct of GDP, from 9.734 bln a year earlier.

The Spanish economy is credited for having avoided the virtual zero growth rate of some of its largest partners in the EU (namely France and Germany) by the late 90’s and beginning of the 21st century in a process which started with former Prime Minister Aznar’s liberalization and deregulation reforms aiming to reduce the State’s role in the market place. In 1997 Spain started an impressive economic cycle -which keeps going as of 2007- marked by an outstanding economic growth, with figures around 3%, often well over this rate.

This has narrowed steadily the economic gap between Spain and its leading partners in the EU over this period. Hence, the Spanish economy has been regarded lately as one of the most dynamic within the EU (the ninth economy of the world and the fifth of EU), even able to replace the leading role of much larger economies like the ones of France and Germany, thus subsequently attracting significant amounts of foreign investment.

Currency
The euro (currency sign: €; banking code: EUR) is the official currency of the Eurozone (also known as the Euro Area or the Euro Land), which consists of the European states of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, and Spain, and will extend to include Cyprus and Malta from 1 January 2008. It is the single currency for more than 317 million Europeans. Including areas using currencies pegged to the euro, the euro directly affects more than 480 million people worldwide. With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro surpasses the U.S. dollar in terms of combined value of cash in circulation.

The euro was introduced to world financial markets as an accounting currency in 1999 and launched as physical coins and banknotes in 2002. It replaced the former European Currency Unit (ECU) at a ratio of 1:1.

The euro is managed and administered by the Frankfurt-based European Central Bank (ECB) and the European System of Central Banks (ESCB) (composed of the central banks of its member states). As an independent central bank, the ECB has sole authority to set monetary policy. The ESCB participates in the printing, minting and distribution of notes and coins in all member states, and the operation of the Eurozone payment systems.

Politics
Spain is a constitutional monarchy, with a hereditary monarch and a bicameral parliament, the Cortes Generales. The executive branch consists of a Council of Ministers presided over by the President of Government (comparable to a prime minister), proposed by the monarch and elected by the National Assembly following legislative elections.

Executive power in Spain lies with the Council of Ministers (Spanish Consejo de Ministros). It is headed by the president of the government (Prime Minister) who is nominated by the king, confirmed by a vote of the lower house of parliament and then appointed by the king. After a candidate has been nominated he must win a majority of the votes of the lower house, failing which, a second vote will be held where he only needs a plurality of votes The Prime Minister designates the rest of the members of the Council who are then appointed by the king. He directs the activities of the government as a whole. The Prime Minister can also designate various vice presidents (although it is not mandatory). There is also a Council of State that is the supreme consultative organ of the government.

Tourism
Spain continues to occupy the second position in the world for both the number of tourists received (after France) and by volume of sales (after the US). Travel and tourism now makes up 12% of GDP according to National Statistics and is of an enormous importance to the Spanish economy.

The Spanish economy managed to grow above the EU average in the last three years of the review period, including growth of 7.8% in 2005 in current terms. The positive performance of GDP was due to the increased vigour of domestic demand in both consumption and investment. Employment growth continued, prompting a rise in disposable income and consumer confidence. These factors had a positive effect on travel and tourism by helping Spain to avoid a slowdown of the industry.

In 2005, the number of German visitors to Spain increased significantly for the first time in several years. This was only the second increase in visitor numbers from Germany in six years, taking the number back almost to 2001 levels. This is due to a slight increase in confidence in the German economy coupled with a sustained effort by the Spanish to bring back German tourists. This was coupled with continuing growth of visitors from the UK and notably France

In 2005, there was a significant reduction in the “sun and beach” holidays that make up the majority of visits to Spain. This is due to the increasing sophistication and varied demands of modern tourism, the ability to get this type of holiday from cheaper locations, and a changing holiday pattern of the European tourist. The new tourists that are replacing this are the impetus behind the growth in rural and cultural tourism. The days of tourists having just one holiday per year lasting two to four weeks are changing rapidly and being replaced by more frequent short breaks that tend to be themed (city, rural, activity etc).

The modern tourist in Spain is not only looking for a typical package holiday but rather a more holistic experience that includes all sorts of additional activities. This can be seen in the significant increases in alternative breaks such as city breaks and rural or activity breaks. These tourists are more self sufficient when booking their holidays, increasingly using the internet, comparing prices, expecting quality, taking advantage of last minute deals, and are altogether more sophisticated and demanding.
Buying Investment Property  in Spain

Overview
The Office of National Statistics says Britons already own 69,284 properties in Spain – and this figure includes only those houses belonging to owners resident in Britain who declare their second home to the Inland Revenue.

In reality, Brits own thousands more properties than this. Research by business intelligence consultancy Datamonitor states that 250,000 homes, equivalent to more than a third of tourist properties in Spain, are owned by Britons. Britain’s Royal Institution of Chartered Surveyors, which conducts an annual survey of European housing markets, says Spain has been the strongest market of them all, rising by 120% since 1998.


Spanish Residential Property Market

Overview
There is no doubt that the Spanish economy is driven by the holiday market, and Spain has been a popular location for many years. As UK property prices have shown massive rises over the last few years, many are now switching to the Spanish property market which offers better value for money. This constant flow of visitors has also encouraged a lucrative rental market, with attractive returns available, especially in the coastal areas.

As coastal property prices have shown good growth over recent years, the effect is starting to spread inland where the more sedate and quieter regions are proving popular with the older generation. So whether you are looking for that vibrant, busy environment or a quieter, slower pace of life, there is something for everyone.

Residential Housing
The strong performance of the Spanish property market is based on sound fundamentals:

Spain’s relatively high rate of economic growth since 1994. The average annual GDP growth of 3.7% from 1998 -2006 was substantially above the EU average of 2%.

Despite recent interest rate hikes, mortgage rates are still low at around 4.5% – 5.5% in April 2007, in sharp contrast to the 17% mortgage rate in 1991 and 10% – 12% from 1995 to 1996.

The numbers of unemployed have fallen from 19% in 1994 to 7.6% at end-2006, and more women have entered the labor force. Real wages grew by an average of 3.2% annually from 2000 to 2006.

There has been strong internal immigration, as Spaniards move from rural areas to the towns. Spain’s prosperity is very recent, and till recently Spain was a largely rural country. Spain may no longer be the most attractive overseas property investment it once was, it still has a lot going of it, both for UK and US buyers.

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